Quantifying Structural Subsidy Values for Systemically Important Financial Institutions ePub (Adobe DRM) download by Beatrice Weder Weder di di Mauro

Quantifying Structural Subsidy Values for Systemically Important Financial Institutions

INTERNATIONAL MONETARY FUND
Publication date: May 2012
ISBN: 9781475577907
Digital Book format: ePub (Adobe DRM)

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Claimants to SIFIs receive transfers when governments are forced into bailouts. Ex ante, the bailout expectation lowers daily funding costs. This funding cost differential reflects both the structural level of the government support and the time-varying market valuation for such a support. With large worldwide sample of banks, we estimate the structural subsidy values by exploiting expectations of state support embedded in credit ratings and by using long-run average value of rating bonus. It was already sizable, 60 basis points, as of the end-2007, before the crisis. It increased to 80 basis points by the end-2009.
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